Admit it: You’re already excited about setting your New Year’s resolutions. As you’re nailing down your goals for 2015, why not consider a self-improvement plan that will also have a positive effect on your credit score?
If you’re not sure what we mean, here are 3 New Year’s resolutions that could improve your credit:
1. Getting organized
If you’re sick of clutter and chaos, vowing to get organized in the new year is a worthy endeavor. But aside from the relief that comes with bringing order to the contents of your closets and desk drawers, tidying up your life could also give your credit score a boost.
Here’s why: Scattered folks are often in the bad habit of paying bills late. This is seriously damaging to your FICO credit score, since payment history accounts for a whopping 35% of it. However, if getting organized causes you to start paying on time, every time, you’re sure to see your score rise.
Not sure how to get the ball rolling? Here are a few ideas to ensure that you’re always paying promptly:
- Set recurring, electronic calendar reminders for all your billing due dates.
- Sign up for text or email reminders from your credit card issuers and utility providers for all your billing due dates.
- Consider setting up automatic payments on your recurring bills. Just be sure you’re keeping enough in the bank to cover these obligations as they’re drafted from your account.
2. Sticking to a budget
Committing to a budget is a great way to guarantee that you have enough money each month to buy the stuff you need and meet your savings and debt repayment goals. As an added bonus, there’s a good chance this could also have a positive impact on your credit.
The reason? Sticking to a spending plan is likely to reduce the amount you’re charging to your credit cards each month. Bringing down your revolving balance will improve your credit utilization ratio, which is the amount of credit you have in use compared with your overall credit line.
If, in the past, you’ve exceeded a 30% credit utilization ratio on any of your cards at any point during the month, your score was likely suffering. But if following a budget causes you to start staying below this threshold, your credit stands to improve substantially.
3. Purchasing your first home (or preparing to)
Realizing the American Dream is a big accomplishment, but you might be surprised that it could enhance your credit. After all, applying for a mortgage will result in a hard credit inquiry, which costs most people a few credit score points in the short term.
But in the long run, taking on a mortgage will likely have a positive effect on your score. By adding an installment loan to your credit report, you’re improving your mix of accounts, a factor that makes up 10% of your FICO score. Plus, taking on a mortgage is just one more opportunity to add positive payment history to your credit report (assuming you pay on time). Remember, rent payments aren’t typically reported to the bureaus; upgrading to a mortgage could give your score a boost.
If home buying is more of a long-term goal, keep in mind that just taking the steps to get prepared could also help your credit. For instance, it’s a smart idea to pull your credit reports in the year or so before you apply for a mortgage to check them for errors. If you spot one and have it corrected, your score will improve and you’ll have a better chance of getting approved for a home loan at a good rate. Win-win!
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